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As was
noted in yesterday's commentary, one of the questions that folks in the
mortgage conference hallways were asking was, "With BofA leaving correspondent,
is someone like Chase going to be next?" There is a big difference between
hallway chatter and headlines of "MetLife
May Sell Mortgage Business" in Bloomberg! "Chief Executive Officer Steven
Kandarian, who took the job in May, is planning to exit a business that
expanded in June when it replaced Bank of America Corp. as the preferred lender
of builder KB Home...Keeping the mortgage unit could divert "resources away from
MetLife's primary focus on its global insurance and employee benefits
businesses," the New York-based company said in a statement. The company, the
largest U.S. life insurer, plans to keep a so-called reverse-mortgage business
that issues home equity-backed loans to people age 62 or older and jumped to
No. 2 in the U.S. this year...MetLife will continue to originate mortgages as it
seeks a buyer for the business, it said. MetLife Bank made about $4.4 billion
of residential home loans in the first quarter of 2011, accounting for 1.5
percent of total mortgage originations...Today's
uncertain marketplace and regulatory environment require a tremendous amount of
resources." Check it out.

Let's sum things up, given the investor scuttlebutt from
the conference and general rumors, possible half-truths, and outright
misstatements. MetLife is/was a solid competitor for wholesale broker business
in many parts of the nation - maybe someone like Fortress will buy the mortgage
group. Bank of America will soon be
strictly retail, and only in some states. Chase
does not buy third-party originated production, i.e., broker business, from
clients. GMAC, PHH, and SunTrust
have varying degrees of operational hurdles, and only buy loans on a mandatory
basis one at a time or not at all, and have varying degrees of tolerance for
buying loans from smaller companies offering correspondent relationships. Are
they ready for all this volume? Looking at the top correspondents, volume-wise,
so we have Wells Fargo, which is
grappling with purchase turn time days into the teens, CitiMortgage, U.S. Bank,
Flagstar, Franklin American, and BB&T. Rumors of higher capital
requirements for correspondent sellers are rampant. Too much competition is one
thing, but does the industry really need fewer players? Besides making things
easier for pricing engines, will the borrower be better off? Let's ask the
protesters about unintended consequences.

"Recap
of 4 days in Chicago: 'All investors suck because of repurchases and all
AMCs suck because they overpromise and under deliver. But isn't Chicago a
great place to have this conference?'" So wrote an attendee to me
yesterday. But a fair amount of news came out of it, one piece being that,
"Fannie Mae and Freddie Mac are
increasingly demanding sellers repurchase mortgages that default years after
they were made and buy back recent loans that aren't even delinquent, according
to PHH." "They're casting the net wider," Luke Hayden, head of PHH's
mortgage unit. Read all about it.

People
like lists, just like Wall Street likes FICO scores, and Forbes came out with its list of most dangerous cities. Taking
MSA's with populations of greater than 200,000, Forbes used the FBI's numbers
for four categories of violent crimes such as murder and aggravated assault.
(Interestingly, in the past crime tends to rise when economic conditions
worsen, but that has not been in the case in the last four years.) Detroit
leads the list ("We're #1, we're #1") followed by Memphis, Springfield (where
Wells Fargo is a top employer), Flint, and then Anchorage.

HUD announced that it is immediately
suspending Michael Primeau, former president of Lend America, from doing any
business with HUD following his admission that he engaged in a wide-scale
mortgage fraud scheme. He is guilty of directing employees of Lend America, a
former FHA-approved lender, to divert mortgage funds intended to pay off
borrowers' first mortgages at refinance closings in order to pay company
operating expenses. Two years ago, HUD found that Ideal Mortgage Bankers, doing
business as Lend America and Lending Key, repeatedly violated the FHA's
origination and underwriting requirements, including submitting false
certifications and failing to document borrower income and creditworthiness. HUD
withdrew the company's FHA approval, and Lend America closed the doors of its
Melville, N.Y. headquarters.

Recently
Federal Reserve Governor Raskin gave a speech on the challenges in the
foreclosure process, specifically related to PSAs and reps and warranties,
providing a summary on how the Fed views
the foreclosure issues. (About two-thirds of the loans made since 2005 have
been securitized. As most know, securitization is a process that involves
gathering hundreds of loans into one package and selling that package in the
secondary market. Often the purchaser is a trust, and trusts are comprised of
investors. After the loans are pooled and sold, the trust hires a service
provider to collect monthly payments and distribute that money to the
investors. That securitization agreement
is called a pooling and servicer agreement or PSA.)

Ms. Raskin noted that the PSA aligns the
incentives of borrowers, servicers, and investors reasonably well when mortgage
defaults are low, but does not in stressed environments. So Raskin
suggested the following: It is imperative to reconsider the compensation
structure so that servicers have adequate incentives to perform payment
processing efficiently on performing mortgages, and to perform effective loss
mitigation on delinquent loans. After the compensation structure is
reconsidered, the PSAs need to be amended or renegotiated in order to
facilitate more workouts. Finally, PSAs should clarify the situations in which
loan modifications and other mitigation strategies should be pursued. One tool
that could aid in providing such clarity, and has received substantial
attention over the last few years, is the net present value model. Requiring
servicers to take mitigative actions that are net-present-value positive to the
investor could encourage the fair and consistent treatment of borrowers.

Investors still in business are busy. Chase
has revised the Funding Request Form and Submission Checklist to include proof
of payment of the VA Funding Fee as a required document, when applicable.

FHA 203(k) loan transactions delivered
to Chase must comply
with the revised Seasoned Loans policy, namely FHA 203(k) loan transactions are
limited to a maximum seasoning period of 7 months from the date of the Note,
allowing a maximum of 6 months to complete rehabilitation and 1 month to
deliver the loan to Chase.

Are
depositories promoting more ARM's? Fifth
Third correspondents are facing a new rate sheet. Starting today, the
pricing grid for Agency Jumbo loans will be updated, with the fixed rate
adjustments worsening by .375 and the arm adjustments are improving by .375.

In the heartland of the U.S., First
Financial will buy Freestar Bank for $47mm, or 1.66x tangible book. The
move gives First Financial 13 branches and expands its footprint in Illinois. Freestar
specializes in agriculture, single family and business lending.

GMAC Bank
Correspondent Funding (GMACB) Approved Delegated Clients please note that GMACB has increased the Underwriting Fee
from $225 to $400 on all conforming, conventional loans underwritten through
GMACB's Prior Approval Department starting 11/1. The underwriting fee for
HomePath and Jumbo products will remain at $225. An explanation must be
included with the file as to the reasoning for using the Prior Approval
process. Please note that under current reps and warrants, the client is held
responsible to alert GMACB if the loan may not be eligible for sale to the
agencies.

Starting yesterday Bank of America made
changes to its VA loan amount adjustments - for anyone still sending loans
BofA's way, it is best to consult the schedule of fees.

At least
the markets seem to be behaving themselves - somewhat. Any good news out of Europe tends to push our rates higher: the
yield on the 10-yr is over 50bps higher than the low of 1.71% posted on 9/22. Mortgage
primary-secondary spreads are tightening in here as new locks are slowing down
and capacity constraints are becoming less of an issue, at least at the retail
level. And the Fed is continuing to buy agency mortgages. Wednesday 10-year
Treasury notes ended lower by 19/32s (2.23%), but the lower prices and lower
volumes in MBS's were welcomed by the various investor groups. Money managers
and insurance companies were noted to be actively buying certain low coupons,
as were banks.

Today the
Fed will announce how much money it will have to reinvest into the MBS market
from mid-October through mid-November. Estimates are around $22 billion which
translates to about $1.1+ billion per day. This scenario with mortgage banker
supply holding in the $1.5 to $2.0 billion area equates to the Fed taking
between 73% and 55% of daily supply. This is a more favorable demand dynamic
versus last week when supply hit between $2.5 and $3.0 billion in a couple of
sessions.

This morning
we'll have Jobless Claims and some trade numbers, and a $13 billion 30-yr bond
auction. With that in mind the 10-yr is at 2.13% and MBS prices are up.

Once upon a time there was a very handsome male camel with two huge camel
humps.
He fell in love and married a beautiful female camel who had one perfect camel
hump.
As time progressed, they became the proud parents of a wonderful baby camel who
had no humps.
They contemplated long and hard on what to call their beautiful little boy.
They finally decided on...
'Humphrey'!

If you're
interested, visit my twice-a-month blog at the STRATMOR Group web site located
at www.stratmorgroup.com. The current blog takes a look at
Fannie & Freddie & the FHFA, and the changes they have in the hopper.
If you have both the time and inclination, make a comment on what I have
written, or on other comments so that folks can learn what's going on out there
from the other readers.

About the Author

Rob Chrisman began his career in mortgage banking - primarily capital markets - 27 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management...
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